CITATION: Premier Dealer Services Inc. v. Tricor Automotive Group Inc.; 2021 ONSC 5785 COURT FILE NO.: CV-18-598795 RELEASED: 2021/08/30
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Premier Dealer Services, Inc. v. Tricor Automotive Group, Inc.
BEFORE: Master Graham HEARD: August 23, 2021
COUNSEL: Robert B. Bell and Lucy Sun for the plaintiff (moving party)
Niklas Holmberg for the defendant
ENDORSEMENT
(Re: plaintiff’s motion to amend the statement of claim)
[1] The plaintiff Premier Dealer Services, Inc. (“PDS”) is an Illinois corporation which creates and administers vehicle service contracts and customer loyalty programs for automotive dealerships. The defendant Tricor Automotive Group, Inc. (“Tricor” or “TAG”) is incorporated under the Canada Business Corporations Act and markets motor vehicle insurance, warranty, and service programs through a network of automotive dealers to purchasers of vehicles. PDS has served as Tricor’s administrator for these programs since 2001.
[2] It is common ground that on October 1, 2014, PDS and Tricor entered into an Administration (Program) Agreement (“the 2014 Administration Agreement”) under which PDS managed and administered various Programs, including Vehicle Service Agreements, Mechanical Breakdown Insurance, Mechanical Limited Warranties, and Loyalty Powertrain Products. These Programs were sold by Tricor or members of its dealer network to purchasers of motor vehicles. The terms of the 2014 Administration Agreement include:
12 months’ notice is required to terminate the Agreement (Article IX);
Tricor is required to maintain the confidentiality of any confidential information belonging to PDS (Article XI);
“Confidential Information” is defined in the Agreement as “all data, trade secrets, trade marks or marks, business information, Programs, Dealer Cost, and any other information of any kind whatsoever that a party herein discloses, either orally or in writing, to the other party.” (Article III);
The 2014 Administration Agreement would take precedence over any previous agreements and no amendment to the Agreement would be valid unless in writing and signed by the parties (Article XIV).
[3] In this action, PDS alleges that Tricor breached the 2014 Administration Agreement by replacing PDS with a new administrator without providing 12 months notice (paras. 10 and 11), and wrongfully used “the PDS Proprietary and Confidential information” (para. 12). PDS claims damages of $3 Million for breach of contract and an injunction restraining the defendant and related individuals “from disclosing or using its confidential and proprietary information” (para. 1(c)). (Paragraph numbers are those in the draft amended statement of claim at Appendix “A” to the plaintiff’s factum.)
[4] PDS now moves to amend the statement of claim to add allegations to the effect that, in addition to misusing proprietary and confidential information in relation to the Programs identified in paragraph [2] above and in paragraph 4 of the statement of claim, Tricor has also misused and profited from PDS’s “lifetime loyalty program certificate”.
[5] The pleadings that the plaintiff seeks to add to the statement of claim on this motion are (using paragraph numbers from the draft amended statement of claim, with amended portions underlined):
The plaintiff claims: (a) damages in the amount of $10 million [increased from $3 million] for breach of contract and unjust enrichment; (b) an order directing the defendant to disgorge and pay to the plaintiff all profits derived from the use of its proprietary warranties;
Dealer profits were also enhanced through the use of PDS’ lifetime loyalty program certificate. The certificate was at all times, and remains, PDS’s proprietary information.
The plaintiff further pleads that the defendant is unlawfully using PDS’s proprietary lifetime loyalty program certificate through the new administrator. PDS seeks disgorgement of profits Tricor has obtained to date from certificate sales in the Canadian market, or in the alternative, damages in the same amount. PDS also seeks injunctive relief to prevent future use of the certificate.
PDS’s proprietary information also includes its lifetime loyalty program certificate. Section 5.2 of the Private Label Marketing Agreement between the parties entered into in November, 2011, states that all forms used or developed by PDS are the “exclusive property of Premier or its insurer, and may not be shared, sold or disclosed in any manner either during the term of the Agreement or at any other time thereafter.”
Article XI of the Agreement [which para. 7 of the statement of claim defines as the 2014 Administration Agreement] requires TAG to keep PDS’s Confidential Information confidential, which include PDS’s rating system and lifetime loyalty program certificate. TAG’s obligation in this regard survives termination.
TAG agrees, pursuant to Article XII.B.4, to indemnify PDS, including for any and all “losses, expenses or damages, including . . . reasonable attorney fees (“Losses”) resulting from “any Losses incurred which TAG . . . caused.” An indemnification provision to the same effect is included in the Private Label Marketing Agreement at section 7.5.
PDS further pleads that TAG is unlawfully using PDS’s proprietary lifetime loyalty program certificate through the new administrator to enhance profits at PDS’ expense. This is in breach the Agreement [sic] and the Private Label Licensing Agreement. [“Private Label Licensing Agreement” must mean the “Private Label Marketing Agreement” referred to in para. 18.]
Tricor’s profit for use of PDS’s lifetime loyalty program certificate in the Canadian market since the Agreement was terminated amounts to approximately $25 million. PDS seeks disgorgement of these wrongful profits, and in the alternative, damages in the same amount.
PDS pleads that TAG has accessed Confidential and Proprietary Information pursuant to the Agreement, including PDS’s rating system, and lifetime loyalty program certificate. TAG will use the information to profit further, unless injunctive relief is granted.
[6] Paragraph 18 of the draft amended statement of claim refers to a “Private Label Marketing Agreement” that the parties entered into in November, 2011 (“the 2011 Marketing Agreement”). Under this Agreement, PDS marketed its Programs to Canadian automobile dealers. The 2011 Marketing Agreement provided that all forms used or developed by PDS “are the exclusive property of Premier or its insurer, and may not be shared, sold or disclosed in any manner either during the term of the Agreement or at any other time thereafter.”
[7] The basis of Tricor’s opposition to the motion, which is elaborated below, is that the proposed amendments constitute the pleading of a new cause of action after the expiry of the limitation period. Tricor submits that the existing action claims damages under the 2014 Administration Agreement and the amended pleadings assert a new cause of action under the 2011 Marketing Agreement of which PDS was aware more than 2.5 years before the motion was brought. PDS does not advance a discoverability argument. Tricor also submits that PDS has not pleaded the required elements of a claim for unjust enrichment.
Law
[8] This pleading amendment motion is brought under rule 26.01:
26.01 On motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.
[9] A pleading amendment that would deprive a defendant of a limitations defence gives rise to prejudice that should defeat the proposed amendment. (See: Frohlick v. Pinkerton Canada Ltd., 2008 ONCA 3 (Ont. C.A.) at para. 28, followed in Cosentino v. Dominaco Developments Inc., 2019 ONCA 426 (Ont. C.A.) at paras. 22-23)
[10] The issue of whether an amendment constitutes the pleading of a new cause of action was addressed in Farmers Oil and Gas Inc. v. Ontario (Natural Resources), 2016 ONSC 6356 (Div. Ct.), in which Nordheimer J. (as he then was) stated, at paras. 14 and 31:
14 As I have said, the central issue between the parties is whether the proposed amendments give greater clarity or particularity to the existing claim, or whether they advance new claims. On that point, the appellant relies heavily on the decision in 1309489 Ontario Inc. v. BMO Bank of Montreal, 2011 ONSC 5505 (S.C.J.) where Lauwers J. addressed this same issue. In that decision, Lauwers J. referred to the two different approaches to determining whether a claim is a new cause of action. On the one hand, one can see a cause of action as a factual matrix. On the other hand, one can see a cause of action simply as the legal basis upon which the claim for relief is based. Lauwers J. concluded that the trend of the case law was to favour the broader factually oriented approach to the meaning of a cause of action. Under that broader approach, if the defendant has notice of the factual matrix underlying the claim being advanced, then amendments that arise out of, or do not depart from, that factual matrix do not constitute “new” causes of action that would not be allowed by way of amendment. On that point, Lauwers J. said, at para. 27:
A plaintiff is not required to name or specify the technical cause of action as an essential part of pleading; in saying this, I do not resile from the requirement noted in Morden and Perell, supra, that ordinarily the facts as originally pleaded, or as better particularized in the proposed new pleading, must be able to sustain the technical cause of action. [emphasis added by Nordheimer J.]
31 In the end result, the requirement to read a pleading generously, and the concomitant requirement to allow amendments unless they will inflict non-compensable prejudice, means that the presumption is that any amendment, that can reasonably be seen as falling within the four corners of the existing claim, ought to be permitted. . . .
[11] In American Axle & Manufacturing Inc. v. Durable Release Coaters Ltd., 2010 ONSC 3368, Newbould J. considered a proposed amended claim for damages arising from an alleged breach of contract and, in refusing the amendment, held (at para.50):
50 While it is the same contract as previously pleaded that is claimed in the amendments to have been breached, the contractual provisions and breaches relied on in the amendment are different from the previous pleading and the breaches and resulting damages are different from those previously pleaded. They constitute new causes of action.
[12] I accept that a claim for breach of a contract different than the contract that was originally alleged to have been breached is a new and different cause of action.
[13] With respect to whether the amendment to add a claim for unjust enrichment should be permitted, in Garland v. Consumers’ Gas Co., 2004 SCC 25 (para. 30), the Supreme Court of Canada stated that the three elements of the cause of action of unjust enrichment are: (1) an enrichment of the defendant, (2) a corresponding deprivation of the plaintiff, and (3) an absence of juristic reason for the enrichment.
Issues
[14] The main issue on the motion is whether the proposed amendments constitute additional pleadings in support of an existing cause of action, being the breach of the 2014 Administration Agreement, or whether they plead a new cause of action, being a breach of the 2011 Marketing Agreement. Both counsel agree that there is no issue of discoverability. It is therefore necessary to review the amendments to determine whether they allege any breach of the 2011 Marketing Agreement.
[15] The issue raised by the addition of a claim for unjust enrichment is whether PDS has pleaded all of the elements that cause of action.
[16] Submissions of the parties
[17] PDS submits that the amendments simply add a claim for damages arising out of Tricor’s unlawful use of its “lifetime loyalty program certificate” through its new administrator, for which the remedy claimed is disgorgement of the profits that Tricor has obtained from certificate sales in the Canadian market, or in the alternative, damages. PDS also claims an injunction to prevent future use of the certificate.
[18] PDS further submits that the proposed amendments arise from Tricor’s breach of the 2014 Administration Agreement already pleaded, so there is no new cause of action being asserted. The reference in the proposed amendments to the 2011 Marketing Agreement is pleaded to support PDS’s interest in the certificate.
[19] Tricor submits that the proposed added claims plead a new cause of action, being a breach of the 2011 Marketing Agreement, which is a completely different contract than the 2014 Administration Agreement currently pleaded. Tricor relies on American Axle, supra to argue that an amendment to plead the breach of a contract that is different from that originally pleaded should be refused.
[20] Tricor also submits that the lifetime loyalty program certificate that is the subject of the proposed amendments was a standard form document that Tricor provided to customers, both when PDS administered the programs and after they terminated the relationship. It is therefore not a confidential document and cannot constitute confidential information under the 2014 Administration Agreement. On this basis, Tricor submits that any damages that PDS seeks for alleged misuse of the certificate must be based on the 2011 Marketing Agreement, pursuant to which the certificate is “Proprietary Information” as opposed to “Confidential Information” that would be protected under the 2014 Administration Agreement that is currently pleaded.
[21] Finally, Tricor submits that the amended pleading does not plead the required elements of a claim for unjust enrichment.
Analysis and decision
[22] I will now review and rule on the specific amendments sought on the motion.
[23] The amendment to paragraph 1(a) of the statement of claim includes an increase in the amount claimed from $3 Million to $10 Million, and the addition of a claim for unjust enrichment. The proposed paragraph 1(b) claims an order for the disgorgement of the defendant’s profits derived from the use of the plaintiff’s proprietary warranties. The amendment increasing the claim for damages is not a new cause of action and there is no basis on which to refuse it. The claim for disgorgement of profits is simply a different remedy arising from the existing allegation in paragraph 12 that the defendant Tricor seeks to profit “in taking the administration business away from PDS by wrongfully using the PDS Proprietary and Confidential Information” and does not rely on a pleading of a new cause of action.
[24] The claim for unjust enrichment that PDS seeks to add to paragraph 1(a) is in addition to the existing claim for breach of contract. In this regard, Tricor submits that PDS has failed to plead the necessary elements of unjust enrichment.
[25] As stated in Garland, supra, the elements of the cause of action of unjust enrichment are: (1) an enrichment of the defendant, (2) a corresponding deprivation of the plaintiff, and (3) an absence of juristic reason for the enrichment. Tricor submits that even on a generous reading of the proposed amended claim, PDS does not plead any deprivation as a result of Tricor’s alleged misuse of the lifetime loyalty program certificate. Further, any use of the certificate by Tricor does not deprive PDS of the ability also to use it, so there can be no “deprivation”.
[26] The only part of the draft amended statement of claim in which the words “unjust enrichment” appear is in para. 1(a) where PDS seeks to add the claim as an additional cause of action. The issue is whether, on a generous reading of the draft amended statement of claim, it pleads the required elements of a claim for unjust enrichment.
[27] The first required element is “an enrichment of the defendant”. PDS pleads in para. 12 that “the defendant seeks to profit in taking the administration business away from PDS by wrongfully using the PDS Proprietary and Confidential Information, including its rating system.” In para. 13, PDS “seeks disgorgement of profits Tricor has obtained to date from certificate sales in the Canadian market, or in the alternative, damages in the same amount.” These pleadings that allege that Tricor “seeks to profit in taking the administration business away from PDS” and that it “seeks disgorgement of profits Tricor has obtained to date” reasonably constitute an allegation that Tricor has been enriched by its conduct.
[28] The second required element is “a corresponding deprivation of the plaintiff”. The words “corresponding deprivation” mean that the plaintiff’s loss must directly reflect the defendant’s gain. In this case, that would mean PDS being deprived of the benefit of the use of the certificate by the fact that Tricor’s new administrator had started to use it.
[29] PDS’s claim, as pleaded in para. 10 of the amended statement of claim, is that TAG/Tricor failed to provide 12 months’ notice of termination of the 2014 Administration Agreement, and that TAG’s president characterized the termination as “adding another administrator”. Based on a generous reading of this pleading, it is plausible that TAG would have benefited from the change of administrator to the extent of the lost value to PDS of continuing as administrator, such that PDS’s deprivation arising from TAG’s conduct did mirror TAG’s enrichment. The evidence ultimately may or may not substantiate this outcome but the pleading is sufficient to meet this required element of the claim.
[30] The third required element is “the absence of juristic reason for the enrichment.” The plaintiff must plead facts to support the claims that it asserts and the draft amended statement of claim is completely silent on this point. The problem is not whether the cause of action of unjust enrichment was previously asserted, but rather that nothing in the existing or amended statement of claim can be construed as pleading this element of the cause of action. Therefore, the pleading of unjust enrichment cannot stand.
[31] The first sentence of paragraph 5 is “The sale of Programs [identified in paragraph 4 of the statement of claim and summarized in paragraph [2] above] enhances dealer profits.” The amending paragraph 6 states another means by which dealer profits were enhanced, through the PDS lifetime loyalty program certificate, which PDS alleges was and is PDS’s proprietary information. The amended paragraph does not allege a different cause of action; rather, it pleads further facts supporting PDS’s claim based on Tricor’s alleged misuse of its proprietary and confidential information.
[32] In paragraph 13, PDS seeks to plead that the defendant is unlawfully using PDS’s proprietary lifetime loyalty program certificate, with respect to which they claim a disgorgement of profits (as in paragraph 1(b)) and an injunction. Whether this amendment should be allowed depends on whether PDS alleges that Tricor’s use of the lifetime loyalty program certificate is a breach of the 2014 Administration Agreement or the earlier 2011 Marketing Agreement. This issue is addressed in relation to the proposed amendments to paragraphs 18 and 19.
[33] The amendments in paragraph 18 plead that PDS’s proprietary information includes the lifetime loyalty program certificate (referred to in paragraphs 6 and 13). This paragraph also refers to the parties’ November, 2011 Marketing Agreement which states that “all forms used or developed by PDS are the exclusive property of Premier or its insurer and may not be shared, sold or disclosed . . . during the term of the Agreement or at any time thereafter.”
[34] Paragraph 18 must be read together with the amended portion of paragraph 19. In paragraph 19, the plaintiff alleges that the confidentiality provisions in Article XI of the “Agreement” (which based on paragraph 7 means the 2014 Administration Agreement), include “PDS’s rating system and lifetime loyalty program certificate” in the confidential information protected. The pleading that “PDS’s rating system and lifetime loyalty program certificate” are included in the 2014 Administration Agreement means that the proposed amendments simply expand the existing claims for breach of that 2014 Agreement and do not constitute a new cause of action based on the 2011 Agreement.
[35] PDS’s existing pleading in paras. 1(c) and 12 of the draft amended statement of claim advances claims arising out of Tricor’s use of its confidential and proprietary information. Tricor submits on this motion that the lifetime loyalty program certificate that is the subject of the amendments is not confidential information covered by the 2014 Administration Agreement. However, that is an issue for trial. The important point on this motion is that the proposed amendments allege only a breach of the 2014 Agreement, which is the original cause of action, and not a breach of the 2011 Marketing Agreement, which would be a different cause of action. Accordingly, the proposed amended pleadings all flow from the 2014 Administration Agreement the breach of which was the subject of the existing pleading. As the amendments simply supplement the existing claim based on the 2014 Agreement, they are permissible.
[36] The amended portion of paragraph 20 refers to the indemnification provision in the 2011 Marketing Agreement. This amended pleading must be read in the context of the first sentence of the paragraph which pleads Tricor’s/TAG’s obligation to indemnify PDS for any losses. The amendment does not plead a breach of the 2011 Agreement but simply pleads the earlier agreement as context for the claim based on the 2014 Administration Agreement.
[37] The amendment in paragraph 28 pleads that “TAG is unlawfully using PDS’s proprietary lifetime loyalty program certificate”, and further that “This is in breach of the Agreement [i.e. the 2014 Administration Agreement] and the Private Label Licensing Agreement” [i.e. the 2011 Marketing Agreement]. This paragraph does allege a breach of the 2011 Agreement and therefore constitutes a pleading of a new cause of action. The amendment will be allowed such that the last sentence reads “This is in breach of the Agreement”, removing the reference to the 2011 Agreement.
[38] The amendments in paragraphs 32 and 33 refer only to “the Agreement” which is the 2014 Administration Agreement that is the subject of the original claim.
[39] Applying Farmer’s Oil and Gas, supra, Tricor has notice through the existing statement of claim of “the factual matrix underlying the claim being advanced”, including all but two of the amendments. The proposed amendments should therefore be permitted with the following two exceptions:
The pleading of unjust enrichment in paragraph 1(a) because the draft amended statement of claim does not plead all of the required elements of this cause of action.
The pleading in the proposed paragraph 28 that Tricor/TAG’s conduct was a breach of the Private Label Licensing Agreement (the 2011 Marketing Agreement), because the factual matrix as previously pleaded does not refer to or claim a breach of that agreement.
Costs
[40] The parties have filed costs outlines. If they cannot agree to the disposition of the costs of the motion, they may make written submissions, the plaintiff within 20 days and the defendant within 40 days of the release of this endorsement. Submissions shall not exceed three pages, not including the costs outlines filed.
MASTER GRAHAM
August 30, 2021